Get-rich-quick property clubs could be regulated

The Financial Services Authority has proposed plans to tighten regulations involving property investment clubs.

Some clubs have come under fire recently for holding get-rich-quick seminars that attract inexperienced investors and can cost them thousands of pounds.

The proposed regulations would mean clubs that do not exercise day to day control over the management of properties could fall under the FSA’s remit. They would be classed as collective investment schemes and therefore be regulated by the FSA.

The proposals are likely to form a chapter in the Perimeter Guidance Manual and are intended to assist people running PICs in deciding whether or not they need to be regulated by the FSA, which will give guidance on issues that arise specifically with PICs.

Robin Gordon-Walker, spokesman for the FSA, says: “The concerns are about non-sophisticated letters getting involved. The consultation paper is not about extending the FSA’s regulatory reach. It is a guide on what might be required to be regulated.

“It’s about clarifying the definitions regarding which clubs can be put into the collective investment scheme bracket. Each case has to be judged individually.

“If the people in a scheme are directly managing the property, such as taking part in weekly meetings, they’re more like property managers. If it is a collective investment scheme it needs to be properly authorised and regulated.”

Ian Fletcher, director of commercial and residential policy at the British Property Federation, says: “We are pleased the FSA has issued this consultation paper. With respect to the proposed regulatory changes, the FSA goes as far as it can under its current remit, but it can only go so far. Whether its remit can be changed is not for us to comment on but for the Treasury to look into.”